Avoid Kickbacks and Other Common Legal Troubles

Legal issues affect not only those with bad intentions. On the eve of an administration change, O&P practitioners should be sure their legal matters are in order.


Section 1128B(b) of the Social Security Act, also known as the anti-kickback statute, penalizes those who knowingly offer, pay for, solicit or receive compensation to encourage business that will be reimbursed through government plans, such as Medicare, Medicaid, TRICARE and any other federal health care program. This law also contains a provision against false claims including incorrect billing or coding, and fraudulent billing.

According to the Office of Inspector General (OIG) in the Department of Health and Human Services, this offense is classified as a felony, and is punishable by fines of up to $25,000 per violation, imprisonment for up to 5 years and exclusion from government health care programs. In addition, violations of the anti-kickback statute can form the basis for civil action under the False Claims Act.

James C. Dechene, PhD, JD, partner at Sidley Austin LLP in Chicago, explained that, by definition, a kickback is illegal if the practitioner has the intent of providing something of value to someone in a position of making referrals. Any time the practitioner gives a gift of any significant value to a referral source, however, that generally may be viewed as a kickback.

Holiday gifts

Bag of money

With the holiday season upon us, many people already have begun sending gifts. Under the Stark Act, the Centers for Medicare & Medicaid Services (CMS) has restricted the extent of that generosity among those in the health care profession.

O&P practitioners often give gifts to referring physicians, physical and occupational therapy practices, and nursing facilities. These gifts — pens and calendars inscribed with the practitioners’ contact information, or even baked goods — express thanks for a year of working toward the common goal of helping patients.

Such gifts generally would not be viewed as a finacial inducement as long as they are of “nominal value,” not cash or a cash substitute like a gift certificate, and are given whether or not the individual provides referrals to the practitioner. Typically, CMS defines “nominal value” as an item worth $15 or less, based on the retail purchase price of the item.

As satellite manager for Mary Free Bed Orthotics & Prosthetics in Grand Rapids, Mich., Mark A. Porth, CPO, FAAOP, operates under slightly different conditions; as part of a hospital, he deals with referrals differently from practitioners in private O&P practices.

“The gifts that we give out during the holiday seasons are nominal — just a small item that has our name and phone numbers, to stay in contact with them and thank them. We have set a limit of nothing more than $30 per group or department,” Porth said.

Dechene suggested a reasonable value is between those two figures.

“I would say that if it is $25 or less, that probably would not be viewed as being a financial inducement,” he said. “I’m not necessarily going to say that if you were a little bit above $25 that that is a bright-line test, but at some point, the value of the gift does become so significant that even though it is not cash or a gift certificate, it still would raise issues.”


Another item on the list of matters where O&P practitioners may find themselves in trouble is with stock-and-bill arrangements. Under these arrangements, practitioners would agree to maintain off-the-shelf inventory in a physician’s office as a matter of convenience to the patient. When the patient needs an orthotic device, for example, the physician would be able to provide the device to the patient and then the O/P company will bill for the device which saves the patient the hassle of seeing two health care professionals..

Generally, this type of arrangement may be permissible, provided that the O&P supplier or practitioner avoids paying the physician to hold that inventory; payment in that circumstance is likely to be construed as being a financial inducement for the physician to prescribe patients devices from that particular supplier, Dechene said.

Mary Free Bed O&P has chosen to avoid this option altogether, Porth told O&P Business News.

“Especially with Medicare, when you are reimbursed by them, you are getting paid for an evaluation, fitting the device and follow up,” he said. “If you do not provide those services and someone else is taking it off the shelf, fitting it and then you are billing, you are not meeting some of those requirements of Medicare.”

Once referral sources begin to recognize a practitioner for off-the-shelf products, they will remember that practitioner for custom orders. But Porth is willing to accept the fact that he may have lost business due to this decision.

“It has a marketing advantage,” he said. “It just depends on your philosophy on whether that is a form of a kickback.”

He said some practitioners even take it one step further, paying a portion of the salary for an employee of the physician office, so that the person providing the O&P devices technically is an employee of the O&P practice as well. That person is responsible to follow Medicare’s policy on documentation and medical justification. This arrangement often causes compliance issues when those employees are unable to follow the O&P practice’s protocol for getting information collected and processed correctly.

In addition, this idea may not follow the anti-kickback statute.

“By putting all these soft goods in [that clinic] to make it more convenient for that physician, are you doing that because you are hoping that all of the custom items will follow as well?” Porth said.

The OIG recently put this issue on its hot item list, and has begun looking more closely at these relationships.

“The theory that you can do a stock-and-bill arrangement and safe harbor it has recently been called into question by an OIG Advisory Opinion 08-10. That OIG advisory opinion suggested that permitting a customer a profit opportunity — selling inventory to the customer that the customer can then turn around and resell at a markup and make a profit — may be remuneration that violates the anti-kickback statute,” Dechene said. “I think that is of significant risk under the anti-kickback statute and probably of increased risk in light of the advisory opinion.”


In these financial times, many small business owners are looking for ways to stabilize business, and some may look to others for help. O&P practitioners might see this as an opportunity to partner with physicians or other allied health professionals to increase the number of referrals. However, those partnerships may not be permitted within the legal system.

The Stark Act prohibits a physician who has a financial relationship with an entity, either an ownership interest or a compensation arrangement, from referring to that entity and prohibits the entity from submitting claims to Medicare for designated health services, including orthotic and prosthetic devices and services. Other statutes apply similar rules to Medicaid and to state programs.

If an entity provides services covered by the Stark Act, it should determine if it qualifies for exceptions.

If not, “then you should not have that kind of financial relationship,” Dechene said. “If that relationship persists, the entity that submits claims should not submit any claims to the Medicare program, and if it does submit claims to Medicare, they are likely to be attacked as being false claims.”

Porth cited as examples physicians who also have O&P or physical therapy departments within their practices.

“I think that you are teetering on the edge, because if there is a financial reason for you to refer to your own organization, you may tend to encourage [patients] to go there, as opposed to [giving them] a list of providers they could see,” he said. “It is a delicate situation. Even if you are a hospital based business, and physicians who are on staff at the hospital refer to you, is that the same thing? I guess the difference is if it is a private company and there is a profit to be received from both providers, then there would be more of a conflict of interest.”

One exception, Dechene said, is with group practices. Under the group practice exception, a group practice can provide certain designated health services within the practice without violating the Stark Act.

“There are, however, special rules that apply with respect to durable medical eqipment that, in general, would prohibit the group practice from offering DME,” he said. “The government has always been more suspicious of DME, and as a result, it is a lot more difficult to find an exception of the Stark Act that might work.”

Free services

Sometimes practitioners can get into trouble even when they are concerned only with helping patients and not with their bottom lines. Charity care is part of any O&P practice, and the government has made it clear that laws like the anti-kickback statute should not prevent practitioners from treating those patients without charge.

However, those within the health care profession and those working with third party payers often disagree on just what “free of charge” means.

For example, if a patient has coverage but still is unable to afford the copay, the provider then might try to collect the full insurance amount and waive the copay for that patient. This raises issues of fraud with third party payers who may determine that the provider incorrectly billed for the service rendered. In this case, the provider would need to note the patient’s specific financial circumstances and have made a good-faith effort to collect the copay, Dechene explained.

Similarly, practitioners at Mary Free Bed O&P decided not to offer discounted rates to anyone.

“Because of the anti-kickback problems out there, we have had to stop anything like that was going on,” Porth said. “That can be tough to do because if you have been working with physicians for 20 years and they develop plantar fasciitis and need foot orthotics, it is tough to charge them full price. We had to make that decision that it is the right thing to do.”

In the clear

With health care reform waiting in the distance, practitioners should be aware of steps they can take right now to ensure they are following laws already in place. To keep abreast of any new legal issues being discussed, OIG consistently updates materials on its Web site. Additionally, the OIG publishes its work plan for the subsequent fiscal year; this gives insight into the type of issues the OIG is seeing in the industry and on what the OIG will focus its investigations.

“If I were a provider in a segment of health care, I would make the OIG work plan one of my must-reads every fall,” Dechene said.

He recommended that practitioners visit OIG’s site on a regular basis in case the OIG is investing an issue that may not seem uncommon or illegal. Practitioners at smaller practices often are not aware of some of the more obscure federal laws.

“Unfortunately, ignorance of the law is not a defense,” Dechene said.

Porth offered his philosophy: “Before we get involved in any relationships or provide any products, we make sure that we have one foot in the courtroom and one foot in our office. Anything that we do or say, we can say both places.

“If you can do that and you can live with yourself, then you have made the right decision,” he said. — by Stephanie Z. Pavlou

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